Should I put 20% down or not.

Question

Hey family,  I am about to buy my first home for my family in Florida. I was wondering if I should put 20% down and buy a newer home or buy an older home and use the cash to fix the house. Plus if I only put down 3.5% and fix the house, could I do a cash out refi after. The biggest issue for us though is this, we don’t have time to fix a house since our lease on a rental ends in a week. We have a place that my family and I can crash until we find a house.

Caleb Brown · Answer

Do 3-5% down conventional since interest rates are so low. You can use the funds for other opportunities.

Dan Maciejewski · Answer

The best value will almost always be in "value-add" properties.  You get to determine the quality and scope of work to get to the final ARV.  Also, in any turnkey house, you will always be paying for someone else's profits.  Whether they lived in it and kept it up, or bought and flipped/rehabbed.  If you do the work, you capture that 15-18+% and keep the profit in-house.

Personally, I think the best option is to buy as much cheap money as possible (finance the most you can), and buy a fixer-upper where you can be more competitive.  Then re-fi (talk to your lender to see how that would look for you) and keep as much cash as possible.

That being said, strategically how much to put down is another issue.  How competitive is your price point and market?  That will determine your answer to a point.

For example, in my market:

You would have a 3-5% chance of a seller looking at your offer at all at the average price point of 450-500,000 with 5% down and needing an appraisal contingency.  You may have a chance if you waive the appraisal, but not much -- even fixer-uppers are going at 99-106% of asking.  In this range, half of all sales are cash, with most of the other half 10-20% down conventional loans.

The higher the price point, the more cash sales there are.

BUT, at a lower price point of 225-325,000, half of sales are FHA or 3-5% down conventional financing, so you can certainly go with a lower down payment and still be competitive.  AND you don't need to even mention waiving an appraisal, since a huge portion of buyers are not cash-heavy, so they are financing all they can.

Rick Albert · Answer

I would look at the price difference between the new construction home and an older home.  If you fix it up, in theory you wouldn't have the maintenance problems, which is why many buy new construction in the first place.

The next thing to consider is why do you have to put 20% down on new construction?  Couldn't you put less?  Money is still cheap and being cash poor isn't great.

Allen McGlashing · Answer

@Kerah Kirangi

This is a great debate. I guess one question to ask is how involved do you want to be in the process. If you buy a property that needs rehab you will need to put in the hours to find contractors and pull permits things like such it will cost time. If you buy a house that is turnkey you “HOPE” it’s all set to go so it “Should” require less of your time.

What do you feel comfortable with? If you rehab the property yes you’ll be able to refi to all they way up to 95% LTV on primary residence that can give you a lot of capital to put back into another deal. If you put 20% down on a top market property you will build equity much much slower and it probably won’t qualify to do a cash out refi for at least a year.

Could you talk to your current landlord or work something out with the person/place your crashing with/at to explain the situation because I think if you can make the time work, the rehab is the way to go in my eye. There is a lot more money to be made that way.

Jaron Walling · Answer

@Kerah Kirangi This moment, situation, scenario, what ever you want to call it is going to determine if you're investing or just buying retail like the majority of home buyers in 2021. Choose a path.

When I started out I found a distressed property that was on market for months. I researched the neighborhood, created a rehab budget, and planned to ReFi after 6-12 months. It qualified for a 3.5% conventional loan and the rest of my cash went to rehabbing the property. I'm a fan of low down payments if you have a plan. If you want to cash-out ReFi, add value, cash-flow, flip, you can't buy like the majority of home buyers. Find something you can leverage, negotiate a lower price, or buy off market. That's the best chance we have as investors right now. Stick to your numbers. If you're working with an agent and they disagree with your numbers ask why. Be sure they understand the mindset. If they don't move on and find another agent and keep looking for deals. Cheers man.

Jon Kelly · Answer

@Kerah Kirangi 3.5% down and fix up the house. Then do a cash out refi.

You'll be retired in no time

Should I put 20% down or not.

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